Rep. Charlene Fite said she was surprised to see Americans for Tax Reform criticize her legislation that would exempt military retirement benefits from state income taxes and cut the special excise tax on soft-drink syrup in exchange for raising three other taxes.
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The Van Buren Republican is one of 25 state lawmakers who signed the Washington, D.C.-based group's pledge to oppose and vote against any and all efforts to raise taxes, according to the group's website.
Americans for Tax Reform President Grover Norquist said in an email to lawmakers that "while a number of good tax reform proposals are being discussed, it's important that lawmakers first do no harm by rejecting calls to impose new and higher taxes.
"Some misguided tax hikes have been proposed targeting soda, candy, and digital downloads. I urge you to reject those proposals, which are problematic for a host of reasons, and instead focus on ways to improve the tax code," Norquist wrote in his email.
But Fite, who has served in the House since 2013, said her House Bill 1162 is "revenue neutral" in its combination of increases and cuts and that Norquist has indicated that voting for "revenue neutral" legislation is not a violation of the taxpayer-protection pledge.
"So I am not sure why he is so upset about it," she said in an interview last week. "I am not violating the pledge."
In exchange for the military retiree tax break and cutting the tax on soft-drink syrup, HB1162 would increase the 1.5 percent sales tax on candy and soft drinks to 6.5 percent, levy income taxes on unemployment compensation and impose a sales tax on certain digital products to pay for these tax cuts.
The bill would become effective in the tax year starting Jan. 1, 2018. The Senate sent the bill to Republican Gov. Asa Hutchinson on Thursday and his spokesman said he will sign it into law this week.
Patrick Gleason, Americans for Tax Reform's director of state affairs, said the group became involved in the debate over the bill because "Americans for Tax Reform is an organization that exists to oppose efforts to raise taxes.
"The tax package voted on by legislators [last] week included a number of misguided tax hikes. It's odd that a tax on manufactured homes was discarded as a pay-for because it would disproportionately hit poor people, only to be replaced with other tax hikes that disproportionately harm poor people," he said Friday in a written response to questions from the Arkansas Democrat-Gazette.
Gleason noted that "given the overall package was revenue neutral, lawmakers who voted for it did not violate the taxpayer protection pledge."
"That said, just because a bill is pledge-compliant does not make it good policy," Gleason said. "ATR is an organization dedicated to educating the public on how lawmakers vote on tax issues. Arkansas state legislators can now go back to their districts and explain why they decided to pile onto the 20 Obamacare tax hikes with regress[ive] tax increases at the state level."
Uniformed service retirees from the Army, Marine Corps, Navy, Air Force and the Coast Guard would be eligible for the income-tax exemption under HB1162. The legislation also would exempt the retirement benefits of retirees of reserve components, any state's National Guard, the reserve corps of the U.S. Public Health Service and the National Oceanic and Atmospheric Administration Commissioned Officer Corps.
Those claiming an exemption would be unable to also claim the $6,000 exemption on nonmilitary retirement benefits, according to the state Department of Finance and Administration.
The exemption is projected to cut general revenue by $6.7 million when it takes effect in mid-fiscal 2018 and then $13.4 million in fiscal 2019, according to the state. That estimate is based on 29,009 retired taxpayers who receive a pension, and the raw average benefit for each retiree would be $462 a year, said Lynne Reynolds, income-tax administrator for the finance department.
HB1162 also would reduce the special excise tax on bottled soft drinks and soft-drink powders from 21 cents to 20.6 cents per gallon, and the tax for each gallon of soft-drink syrups from $2 to $1.26. It would transfer $3 million in the middle of fiscal 2018 to the Medicaid program, to offset the reduction in that tax, and would transfer $5.9 million in fiscal 2019.
The measures also would levy the 6.5 percent sales-tax rate on candy and soft drinks rather than the reduced rate of 1.5 percent on foods, to raise $6.9 million in fiscal 2018 and $13.8 million in fiscal 2019; make unemployment compensation benefits subject to state income taxes, to raise $1.6 million in fiscal 2018 and $3.1 million in fiscal 2019; and levy a tax on sales of certain digital products -- including audio works, audiovisual works and books, as well as on sales of digital codes that allow the consumer to access these products -- to raise $1.2 million in fiscal 2018 and $2.4 million in fiscal 2019.
Among the other 15 representatives who signed the Americans for Tax Reform's pledge, eight of them voted for Fite's HB1162, five voted against it and two voted present. The bill cleared the House last week in a 75-14 vote with eight representatives voting present and three not voting.
Beyond Fite, the other eight representatives who signed the pledge and voted for the bill are: Charlie Collins, R-Fayetteville; Mike Holcomb, R-Pine Bluff; Clint Penzo, R-Springdale; Brandt Smith, R-Jonesboro; Reginald Murdoch, D-Marianna; Laurie Rushing, R-Hot Springs; Rebecca Petty, R-Rogers; and Danny Watson, R-Hope.
The five pledge signers who voted against the bill are: Bob Ballinger, R-Hindsville; Mary Bentley, R-Perryville; Michelle Gray, R-Melbourne; David Meeks, R-Conway; and Josh Miller, R-Heber Springs.
Bentley said she didn't think about the pledge when she voted against the legislation.
"I am all for the veterans tax cut," she said. "I thought we could cut spending or I was not opposed to [changing] the tax code on soft drinks and candy."
When asked where the state budget could be cut, she said she believes that lawmakers could identify places to cut before the end of this year's regular session.
Reps. Les Eaves, R-Searcy, and Lane Jean, R-Magnolia, voted present.
"The problem I had was the online-tax portion," Jean said. "I wanted to give to veterans, but in reality the tax cut was really a tax increase."
Supporters of the legislation said it would be fair to impose the sales tax on digital downloads of music, CDs and books because consumers are charged sales tax on their purchases of the same items at bricks-and-mortar retailers.
Asked why he voted present, Jean said, "It was kind of a polite way to say I didn't like the total bill."
Last week, Ballinger introduced House Bill 1399, which would exempt military retirement benefits from income taxes but without changing other taxes. The bill's 16 House co-sponsors include Bentley, Gray, Jean, Meeks and Miller.
Gleason said Americans for Tax Reform urged lawmakers to either strip the tax increases in HB1162 and its Senate companion or support Ballinger's HB1399.
Ballinger said he believes that all state agencies "can probably absorb" a $13 million general revenue budget cut to pay for his bill, but he won't present the bill to the House Revenue and Taxation Committee unless it has a chance of clearing the committee.
Senate Republican leader Jim Hendren of Sulphur Springs said last week that he pressed lawmakers who favor spending cuts to pay for the income-tax exemption to state what they want to cut.
"Nobody was prepared to give that level of specificity. It is easy to talk about spending cuts until you say, 'We are going to cut higher ed. We are going to cut K-12. We are going to cut pre-K. We are going to cut city-county turn-back.' As soon as you do that, you get push-back," Hendren said.
Sen. Jane English, R-North Little Rock, is one of nine senators who have signed the tax pledge, and she is the Senate sponsor of HB1162 and the sponsor of the identical Senate Bill 120. HB1162 and SB120 cleared the Senate in 29-0 and 30-0 votes, respectively.
Six other senators both signed the pledge and voted for those bills. They are Blake Johnson, R-Corning; Bart Hester, R-Cave Springs; Missy Irvin, R-Mountain View; Jason Rapert, R-Bigelow; David Sanders, R-Little Rock; and Terry Rice, R-Waldron.
Sen. Gary Stubblefield, R-Branch, who signed the pledge, voted for SB120 but voted present on HB1162.
Sen. Scott Flippo, R-Mountain Home, who signed the pledge, voted present on both bills. Flippo said he didn't feel comfortable with imposing a sales tax on digital downloads and increasing the sales tax on candy and soda. He also said the tax increases wouldn't expire if more military retirees move into the state and make the tax exemption pay for itself because of other taxes they would pay.
"I didn't look at it as raising taxes," English said. "I think we were looking to find a way to make that tax exemption [revenue] neutral."
English said she's not surprised that Americans for Tax Reform has been critical of the legislation.
"Sometimes you just have to do what is right," she said.
"For the longest time I have believed we have to be competitive with the states around us because there a lot of Arkansans stationed across the world ... and they are looking at the choice of where they are going to be when they retire after 20 years," English said. "We want the people at Little Rock Air Force Base to stay here and work. It's always been an economic-development thing. They have lots of skills already."
SundayMonday on 02/05/2017